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Technology Stocks : Amazon.com, Inc. (AMZN) -- Ignore unavailable to you. Want to Upgrade?

To: Eric Wells who wrote (89391)	1/2/2000 1:40:00 PM
From: i-node	Read Replies (3) \| Respond to of 164684

Personally, I feel there is a tremendous risk in investing in Amazon - Bezos has embarked on an experiment that includes a high degree of uncertainty - no one knows if they will succeed, or if they do, how successful they will be. There is no question that the above statement is correct. AMZN has a great deal of risk associated with it; but the potential rewards are mind-boggling. I think so long as one purchasing stock in AMZN understands the risk, then it is appropriate to pursue the rewards. Simply put, if you are going to gamble (it IS a gamble) on any .com, it seems clear to me that AMZN is the one. You seem to be arguing that the business model won't work -- that somehow, WMT is able to make money in B&M while AMZN will never make money in a .com. This simply doesn't make sense; it is evident that you can operate a .com on a tiny fraction of what you can a chain of hundreds or thousands of B&M facilities. As a result, there is little question in my mind the profit margins will be there when the infrastructure is complete. Isn't it true that because Amazon is recording some of their fulfillment costs in marketing & sales expense that we really don't know if their margins are positive or negative - for any item they sell? Well, assuming arguendo that non-fulfillment marketing costs are zero, then yes, you could say that they have lost money on every unit they've sold. However, this model doesn't scale to larger operations. It is important to keep in mind that fulfillment costs do not vary proportionately with sales. That is, it is more appropriately represented by a "step-cost" function, under which there is a substantial fixed cost component over some relevent range of operations. Just as an example of some of the costs that are fixed to some extent, consider the following (all may not apply in AMZN's case, but they are examples of kinds of things I'm talking about): -Warehouse space tends to be acquired over maybe a 5 or more year planning horizon; you are paying for empty warehouse space in the early years, but there will be little or no cost increment as the warehouse fills up. -Systems are developed in such a way that the cost to scale to additional seats are relatively low; -Warehouse and material handling systems costs will be fixed over some relevent range of operations. I'm sure you can think of many others. Bottom line is that you've got a guy, Bezos, who is starting an operation designed from the ground up to scale to many billions in sales. Given that, it should be totally expected and appropriate to see some losses in the early years. This doesn't concern me. Consider once again the analogy of a drug company spending many millions in developing an important drug. Happens evey day, and we don't get concerned about it. (Remember when Genentech had its IPO in 1980?)